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Trucking industry may see upswing

Gains in economy triggering increases in freight tonnage

SHARE Trucking industry may see upswing

The trucking industry is beginning to show the type of growth that analysts associate with a fundamental improvement in the U.S. economy.

The evidence contrasts with signs of industrywide healing a year ago, when large trucking companies reported increased volumes, better rates and higher profits due to consolidation as thousands of smaller carriers went out of business.

Now, analysts and industry officials are pointing to recent strength in the retail and manufacturing sectors as catalysts for growing freight tonnage.

On Tuesday, Merrill Lynch raised its third-quarter earnings estimates for Swift Transportation Co., Werner Enterprises Inc. and J.B. Hunt Transport Services Inc.

The upgrade comes on the heels of a recent report from the American Trucking Association showing that freight tonnage rose 2 percent in July compared with last year. It was the second consecutive monthly tonnage increase on a year-over-year basis.

"There's a very clear correlation between manufacturing (data) and tonnage," ATA economist Diego Saltes said.

A key index of manufacturing activity in August rose to its highest level since last December. The Institute for Supply Management report also said that while demand for manufactured goods was up in August, inventories were down — a trend that could also bode well for truckers.

Thomas Albrecht, senior vice president of transportation research at BB&T Capital Markets in Richmond, Va., called it "a nearly perfect backdrop for continued improvement in freight volumes."

"We're not going back to 1999 anytime soon, but there's room between those growth levels and the sloppiness we've had the past year and a half," Albrecht said.

The industry is still negatively affected by higher diesel prices and insurance costs, but analysts said trucking companies have been able to pass along most of these expenses to their customers as a result of tight capacity and increased demand.

Based on reports of August sales growth at Wal-Mart Stores Inc., Target Corp. and other major retailers, Merrill Lynch trucking analyst Ken Hoexter expects monthly freight volumes to increase for the remainder of the year.

"We believe the strong sales could augur well for increased truckload traffic during the remainder of the year as shipping for the holiday season follows the back to school selling season," Hoexter said.

Shares of Swift Transportation rose 13 cents to close Tuesday at $23.90 on the Nasdaq Stock Market, where shares of Werner Enterprises rose 42 cents to $26.22 and J.B. Hunt's climbed 31 cents to $26.50.

The Dow Jones Trucking Index, which tracks 38 companies in the sector, is up 33 percent over the past year.